Chapter 12, Problem 2BPSB

To determine

Introduction:

An unincorporated association in which two or more people engage in business as co-owners for profit is known as partnership. In choosing the proper business form one of the many factors which are considered are generally taxes and liability risk. Partners can contribute as much capital to the partnership as they want while forming a partnership.

To calculate:

Prepare three tables with the following column headings. Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the partners under each of the four plans being considered.

Answer to Problem 2BPSB

Explanation of Solution

The partnership income or loss should be allocated in the above manner under the four plans.

Year 1
Income(Loss) Sharing Plan	Calculations	Bell	Green
Plan A	$(36000)\times \frac{104}{260}$   $(36000)\times \frac{156}{260}$	(14400)	(21600)
Plan B	$(36000)\times \frac{1}{4}$   $(36000)\times \frac{3}{4}$	(9000)	(27000)
Plan C	Salary allowanceRemaining bal=(-36000-48000)=-84000   $(84000)\times \frac{104}{260}$   $(84000)\times \frac{156}{260}$	- (33600)	48000 (50400)
Total		(33600)	(2400)
Plan D	Salary allowance10% interestRemaining bal=(-36000-48000-10400-15600)=(110000)   $(110000)\times \frac{1}{2}$   $(110000)\times \frac{1}{2}$	- 10400 (55000)	48000 15600 (55000)
Total		(44600)	8600

Year 2
Income(Loss) Sharing Plan	Calculations	Bell	Green
Plan A	$76000\times \frac{104}{260}$   $76000\times \frac{156}{260}$	30400	45600
Plan B	$76000\times \frac{1}{4}$   $76000\times \frac{3}{4}$	19000	57000
Plan C	Salary allowanceRemaining bal(76000-48000=28000)   $28000\times \frac{104}{260}$   $28000\times \frac{156}{260}$	- 11200	48000 16800
Total		$11200	$64800
Plan D	Salary allowance10% interestRemaining bal(76000-48000-10400-15600=2000)   $2000\times \frac{1}{2}$   $2000\times \frac{1}{2}$	- 10400 1000	48000 15600 1000
Total		$11400	$64600

Year 3
Income(Loss) Sharing Plan	Calculations	Bell	Green
Plan A	$188000\times \frac{104}{260}$   $188000\times \frac{156}{260}$	75200	112800
Plan B	$188000\times \frac{1}{4}$   $188000\times \frac{3}{4}$	47000	141000
Plan C	Salary allowanceRemaining bal(188000-48000=140000)   $140000\times \frac{104}{260}$   $140000\times \frac{156}{260}$	- 56000	48000 84000
Total		$56000	$132000
Plan D	Salary allowance10% interestRemaining bal(188000-48000-10400-15600=114000)   $114000\times \frac{1}{2}$   $114000\times \frac{1}{2}$	- 10400 57000	48000 15600 57000
Total		$67400	$120600